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The Quiet Before the Storm: Fortifying the Landlord's Position Before the Tidal Wave of Tenant Bankruptcy

By By Lee Collins

After the signing of the lease, the last thought entering the landlord's consciousness is that its new tenant is going to file for bankruptcy protection during its tenancy. In the beginning stages of the relationship between landlord and tenant, there is a brief period of shared optimism about the future and the joint prosperity that the new union is bound to offer.

This period may represent the quiet before the storm ' when the landlord's optimism soon gives way to the unfortunate reality that the tenant is in dire financial distress. Financial crisis can turn, very quickly, to the filing for bankruptcy protection in the form of reorganization under Chapter 11 or liquidation under Chapter 7. Once the landlord becomes a creditor in bankruptcy, it is powerless to change the terms of the lease and the respective rights of the parties without the approval of the bankruptcy court. The retail landlord is in a considerably better position and is more likely to maximize its value proposition as a creditor in the tenant's bankruptcy proceeding when it employs foresight and prevention, careful monitoring, and decisive action.

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